Funding the unfundable

January 27, 2013

Gov. Neil Abercrombie announced in his State of the State speech Wednesday that Hawaii will set aside $100 million next year to begin to address unfunded liabilities for pensions and health benefits for state workers.

The only problem is that those unfunded liabilities are already in the $20 billion range and they will go over $30 billion in the next decade. As the governor put it in his speech:

"To pay down this liability would require the state to put up more than $500 million every year for 30 years. . . . This is a number impossible to meet all at once."

Really? So what are we going to do about it? The governor's speech didn't really offer a clue, other than the $100 million down payment. He indicated there would be continued payments in future years. But the governor seemed to reject reducing benefits even for future employees.

"During the last few years of the recession while staring in the face of obligations to retirees, other states and cities nationwide have blinked and have either slashed retirement benefits that were previously earned or declared bankruptcy."

Isn't it about time to blink a little bit and realize that traditional defined-benefit plans are unsustainable, even for governments? Hawaii is not alone in this boat - governments across the nation have promised benefits that they cannot afford to deliver.

To give the governor his due, he is at least addressing the issue. But a commission needs to be formed to not only address how the already accrued liabilities can be funded, but how future ones can be curbed or avoided.

Private industry has learned the defined-benefits lesson - nobody can afford them. Those plans must be replaced with defined-contribution plans.

Government cannot renege on promises made to existing employees, but it can stop making the same promises to future ones.